A controversial component of the Medicare Prescription Drug Benefit (Part D) enacted in 2006 is the "doughnut hole", a gap in coverage for pharmacy expenditures between $2,250 and $5,100. We recently reported that one in four seniors entered the doughnut hole in 2006 and reduced their number of prescribed medications by 14% per month after entering it.1 Cost-related medication non-adherence can worsen health outcomes, lead to higher rates of hospitalization, and increase overall medical care spending.2, 3 The coverage gap may be particularly detrimental to Medicare beneficiaries with chronic mental disorders such as major depression, bipolar disorder, and schizophrenia, but we know almost nothing about how they respond to the coverage gap. We will use merged national Medicare pharmacy and medical data to evaluate changes in medication use and clinical outcomes before and after entering the doughnut hole, among beneficiaries with three mental disorders. We then use the estimated effect to assess the most cost-effective approaches to covering psychotropic medications in the doughnut hole. We will compare approaches that involve: a) covering generic psychotropic drugs, b) covering all psychotropic drugs for a certain subpopulation, and c) reducing the size of the doughnut hole. Findings from our study will provide critical information for policy makers to redesign Part D benefits or value-based insurance design in general. Equipped with this information, in addition, clinicians and care givers can anticipate the adverse effects of the doughnut hole and proactively work together with patients to develop alternative regimens. Major depression, bipolar disorder and schizophrenia are costly and disabling illnesses, which affect over 15% of Medicare beneficiaries and cost $165 billion annually in the US. Over half of Medicare beneficiaries with these mental disorders spent more than $2,250 on pharmacy expenditures in 2006, and many were fully exposed to the coverage gap under current Medicare Part D benefit design. We propose to assess the most cost- effective, potentially cost-saving, methods to pay for psychotropic medications for these beneficiaries entering the coverage gap.